Category: Blog

So many businesses make investments that will pay off in future generations, and yet they’re not paying attention to their future generations. The next generations’ readiness to lead and understanding of the business are the most important investments a family business can make.

It’s understandable. Many parents don’t want to talk to their kids about their legacies. They don’t want their kids to know how much money they have, or how much money the kids will inherit. They try to protect the children from entitlement. But while you may be protecting them from the negative aspects of inherited assets, you’re not maximizing any of the positives aspects.

When preparing children for inheriting a family business, it doesn’t work to deny them any information or knowledge. If you do that, once they get their hands on their share of the family business, they won’t know how to deal with it.

There are a couple things that the kids really need to have.

Make sure the kids know what the business is and what it does, from the time they’re very little. Even a manufacturing business can be introduced to small children through interactive plant tours.

Make sure that every interaction that the kids have with the family and the business is exciting, fun and educational.

Make sure that every time the older generations get to together for the business, they’re creating opportunities for the younger generations to spend time with each other, or be included in conversations about the business as appropriate.

For example, one family I work with has a multi-faceted next-generation program. The youngest kids, whose parents are in the family council, fly in or drive in with their parents every quarter. They get a babysitter and they play together and do fun activities while the parents are in meetings.

At the annual meetings, anybody who doesn’t need a nap does an interactive plant tour and does family camp. Then, as the kids get into the later high school years and college years, they have the flexibility to come into the meetings on and off. They can come for a morning session and then go back and play with the little kids in the afternoons. As they get older and understand more, they can stay for more and more of the meetings. High school and college kids get internships of varying lengths, based on their interests and age. This really helps inform what they’re interested in doing in college, too, and many are motivated to gain additional business experience.

It’s short-sighted to plan for the long-term growth of the business and not also plan for the long-term growth of the family. Being part of a family business can be one of the most rewarding things in life. The combination of family and business makes a unique combination, giving the opportunity for a financial return, but also an emotional return and a relationship return. Having a family business to unite an extended family can be highly positive.

Living in the same city as the rest of your family is a huge advantage if you’re trying to run a family business. It’s much easier to get people connected socially and assemble them for business meetings. But there are also advantages to being geographically dispersed.

Far-flung families make the most of their time together

One advantage is that people have to step away from their daily lives when they gather for meetings. It’s easier to focus on the business when nobody is distracted by their day jobs, their pets, their regular social lives and hobbies. Meetings scheduled for a geographically dispersed family tend to be longer and more content-rich, because the organizers are motivated to make the travel worth it. Plus, events will get better attendance because everybody’s a captive audience.

Another advantage is that social connections can be formed more quickly when the time together is concentrated. Remember how close you were with your friends from summer camp? Family meetings can have the same quality, as people take advantage of the opportunity to have fun together at dinners out, planned events, and activities geared toward the kids.

Keeping connected between meetings

The challenge of being geographically dispersed is to have a continued conversation about the business remotely. How do you keep the business and family governance top of mind?

I recommend these techniques to keep the conversation going throughout the year.

Make a communication plan so you’re sending messages at consistent intervals, rather than sending a barrage of emails one month and nothing the next.

Use webinars and conference calls to talk about family business topics and train rising leaders.

Schedule quarterly debriefs with the CEO or chairman of the board, and ask the CFO to present a quarterly financial overview.

Post crucial information on a web portal so the whole family has equal access to important documents.

Write a quarterly newsletter with an overview of major developments, and link to more detailed documents on the portal.

Send a postcard each quarter listing upcoming events and calling attention to key announcements. This is useful for family members who are less comfortable communicating online.

Start a private Facebook page for the family. Sharing photos and personal announcements is a great way to strengthen relationships and engage the younger generations.

Families have to work harder at being inclusive and transparent if they live far away from each other. But even simple strategies like using webinars and conference calls to work on solving problems can help build relationships and get people engaged about topics they’re passionate about.

When the family has opportunities to think about the business throughout the year, they’ll be able to work together more efficiently and effectively when they get together for annual meetings and other events. Ongoing conversations through Facebook make it easy to stay in touch with people’s lives in between meetings, reminding everyone that you’re family first and business partners second.

Along with financial returns, engagement is one of the best returns a family can get from being part of a family business. Engagement engenders an emotional return, which just like a financial return is measurable and meaningful. Without an emotional return, the family will look at the business only for its financial performance.

Engagement means that the family has a clear understanding of what the business is doing and the business strategy and objectives. The family members are taking time out of their own personal lives and spending time learning about the business, making sure they have a strong family governance system or process. The youngest generation is very much involved in getting to know one another and learning about the business and the family in an age-appropriate way.

Engagement means that management shares what happens with the business, and the family has enough knowledge to understand the business opportunities and risks that the management presents to them. It means that there is transparency both ways between the family and the business. The family is high-enough functioning that the family council leaders don’t need to keep the rest family away from the business. And the family knows that when management talks to them about challenges and opportunities, they’re not asking for advice, they’re just sharing for transparency’s sake.

In line with that transparency, not every decision is a great one. The family understands the long-term objectives of the company and doesn’t get caught up in small issues or localized successes and failures. They see themselves as stewards of the business. They’re not thinking about how a specific decision is going to impact their quarterly or annual return. They’re really thinking about how each decision is going to impact their longevity as a family business.

In an upcoming series of posts, I’ll discuss the main ways engagement benefits and strengthens a family business.

It helps a geographically dispersed family stay connected. If you’re part of a first or second generation family business, your shareholders may not be geographically dispersed yet, but that day is coming.

Family engagement helps with next-generation development. In an engaged family, there are many more highly qualified family members to choose from when it’s time for succession planning.

Engagement helps ensure the longevity of the family business by cultivating the youngest generation from an early age. It allows the business to plan for long-term growth because the family is also planning for long-term growth.

Engagement throughout the year helps maximize the time together during annual meetings because everyone is already connected and up to speed on topics important to the business.

And finally, we’ll look at ways to build engagement through living out a family’s values–principles like transparency, inclusiveness, stewardship, education and relationships. We’ll look at the best ways to build engagement in a talented, multifaceted family when everyone has a really exciting job that keeps them busy all year when they’re not actively involved with the family business.

What would you like to know about family engagement? I’d love to hear your thoughts

Engagement is one of the most critical issues that families face, but most don’t know why it’s important.

So many family businesses are making investments for the next generation, which in my family’s case means my children and their cousins. But many families are doing nothing to fully engage all generations of the family, make succession plans for key leaders or develop that youngest generation. They don’t know how to be engaged with the business without being overreaching, so they try to be disengaged. But that can cause even more problems than over-engagement.

I have spoken to many families who make long-term investments and set up the business for success for the sake of coming generations, and yet they’re not doing any work to make sure that the family at the youngest age is ready and excited about being a part of a family-owned business. It’s one of the ways people focus on the business side and forget why the family is important.

When you look at all the different risks to a family business, often the biggest risk is the family. It’s the one that can decrease the value of the business quite quickly through lawsuits or big fights. But the family can also endanger the business through unengaged shareholders. A disengaged family is more likely to sell back huge chunks of stock, which decreases the value of the business and ties its hands in terms of future investments.

If you think about engagement from a risk perspective, the best kind of engagement you can get is a family who experiences a high return. Not only do they have a financial return, but they have an emotional connection to the business, how it interacts with the community or the employees, or the products it makes. The family experiences a relationship return in that the individuals feel connected to each other in some way. It has to be pleasant to be together even if you don’t like each other. You have to be able to work together and get along.

When you have strong engagement, you have an environment where the family is adding to the business and increases the bottom line. Positive engagement shows the management team and the board that the family is invested for the very long term, so it makes sense for the business to invest for the very long term as well, and for the board to support that.

Often, families think to be engaged they have to give the business some advice about how to operate. And that’s not helping. It’s not good for the business. If you don’t work in the business you should not be giving business advice.

So the question is: What is engagement if you’re not involved in operating the business? What does the ideal amount of engagement look like?

In family business literature, I have read with alarm that it’s fine to have family branch representation on the board or on the family council. There are several reasons why families should move away from family branchism. The most powerful examples are found in family disagreements and lawsuits. Take the Demoulas Market Basket family, for example. They had branch representation and their disputes ran along branch lines even on the board.

The challenges of defining a branch

Families define a branch in many ways. Usually branches are determined by breaking the family into units defined by a certain generation, such as G2s and their descendants or G3s and theirs. The further down the family tree that you start defining the family branch, the more branches you have to make room for.

Creating a branch policy for membership on the board or family council may create a more harmonious environment in the short term because a family doesn’t have to have the difficult discussions around qualifications and expectations, but it also creates a huge downside: entitlement, under qualified directors or council members, a missed opportunity to encourage all representatives to speak and get to know all family members (rather than just their branch), and the family loses on development opportunity to meet the qualifications of the role.

Family branch mentality breeds entitlement

I have heard tales of families who select their next CEO based on which branch’s turn it is to serve. Unless each branch has an equally highly qualified candidate for CEO, the company is in for some rough times. Not only is the family missing the opportunity to pick the best person for the job, it also tells the employees that merit doesn’t matter – having the right last name is enough. That sets up the family member for an even more challenging task as they take on their leadership role. The same is true for family directors and family council members when families elect branch representatives. They may be selecting the most qualified family members in those branches, but without established expectations, and the willingness to elect no one to the role unless there is someone who can meet the expectations, then a branch focus will lead to entitled and under qualified executives, family directors or council members.

Avoiding entitlement and family branchism

Those who are most qualified should serve on the board, or lead the family in other ways, regardless of which branch of the family they belong to. Along with the hard skills like business acumen and a strong financial background, family director qualifications should also include those softer, more elusive, skills like trustworthiness, involvement in family governance, as well as the requirement that the family director represent the whole family at all times. If a person does not meet all of the soft and hard skill requirements, then the person is not qualified to serve.

Representing the whole, not the branch

It may seem harder to represent the whole family’s interests, rather than just the branch; but it makes things easier in the long run. The family avoids dividing along branch lines on any given subject. The key to representing the whole, rather than just a part, is to have a consistent and transparent communication plan, a clear and repeatable change process, and inclusive decision making. It also helps to promote family interaction with all directors and family council members. All of these practices promote trust and build engagement in the whole family, and the need to focus on family branch falls to the wayside. Branch representation is an easy way to avoid some difficult conversations now, but it can lead to huge downsides in the long run.

Many families I know like to keep the peace. It’s entirely understandable because family arguments feel like they shake the foundation of everything that has been built before, like denigrating the legacy.

Avoiding arguments may be wise, but it doesn’t mean that a family can’t have difficult conversations. In a work setting, people have difficult conversations all the time. They give and receive feedback, share their diverse ideas in a constructive manner, struggle with co-worker incompatibility, and have civil conversations with managers they can’t stand. You can find any or all of these examples in a well-run work place. Having constructive disagreements is part of doing a job well. If you don’t do it well–by fighting with a coworker, yelling at a customer, or hurling epithets at your boss–you will likely lose your job.

Why is a family organization so different? There are several key differences.

The family is stuck with each other. You can’t fire an unruly family member, even though you may want to. You can’t even make them sell their stock if they don’t want to.

You can never escape your history. It’s hard to change the family’s perspective of an individual if they have had spectacular failures, rants, or outbursts. People will still remember you as the one who had that crazy freak out at the family meeting in 1999. It takes a lot of work and consistency to move past those historical perspectives.

Hurt feelings can last a long time. Family business means you’ve seen everyone at their worst. Just like they remember your least mature moments, you may also have a hard time letting go of theirs. It can be tough to move beyond getting horribly teased by all your cousins when you were 15.

How does a family take the heat out of difficult conversations so that they can be constructive?

Define what you have in common and make decisions that are based on that. For example, create a 10 year vision for your family. What kind of relationships and education do you want for your family, and what kind of leaders? Determine what values you have in common as a family and then figure out how to put your vision into action and live your values.

Implement a formal process to bring forward unique and challenging ideas. Explore these topics. Questions on redemption, management, corporate governance, or dividends are all good questions, despite what motives may really be behind the question.

Build working relationships through the use of committees or task forces.

Don’t put undue pressure on individuals to feel a close family bond with their 2nd cousins one removed.

Why bother?

These difficult conversations, if avoided now, will come back to rear their ugly heads at the most inopportune time–a wedding, a board meeting, or a family retreat. Each generation has a responsibility to manage their issues now. Any deferment makes it 10 times more difficult to resolve once it has been passed down to the next generation. It is much harder for a generation of 25 to deal with the inherited conflict than it is for their parent’s generation with only 6 in it.

It’s better to take difficult conversations head on, with a spirit of curiosity and good will, rather than trying to avoid it. Implementing a formal process shows the family that they don’t have to bring up their issues in the board room or at the cousin’s wedding because the family has a proven process to manage these difficult conversations at the right time and place.

Avoiding difficult conversations doesn’t make the problems go away. Having the courage to talk about challenging things is an important part of strengthening family relationships and the family business.

Someone asked me the other day what the “secret sauce” was in managing family conflict. I thought that was pretty funny because the definition of a difficult family member or family conflict implies that it can’t be easily remedied by any one solution. Alas, there is no secret sauce that I have found, but there are solutions to this tricky problem.

It takes a multi-pronged approach. First, the family has to identify the old patterns of behavior that are creating the problem. In most families I have worked with, each conflict has the same dynamics. For example, one person makes a snarky or challenging statement, several other people rise to the bait, and then everyone takes sides and the battle begins. Determine what the pattern is. What are the triggers? Does one person always play a certain role?

Next, change the conflict environment. In one family I worked with, several family members would get into an argument at every family meeting. In this instance, we couldn’t adjust the triggering statement, but we stopped the conflict cycle by changing the response. We had to stop letting the argument escalate with the family as an audience.

Instead of responding immediately after the challenge was posed, the family council chair waited until after the meeting. Then she called the individual who had made the challenging statement to follow up and understand their concerns. Once the scope of the concern was fleshed out, the family council chair sent an e-mail to the family with a more detailed description of the concern. Then the family agreed to create a task force to address the concern in a constructive way.

There were several benefits to this approach.

The family didn’t have to sit through a stressful argument during a family meeting.

The family didn’t feel that they had to take sides in the discussion.

The individual with the concern felt heard and taken seriously, not brushed off or shut down.

The family made an informed decision by taking time to fully articulate the concern and then putting together a task force to answer the question. This gave the family time and space to do research and analysis on the issue.

The family changed the conflict environment by stretching the decision making process out. This allowed for a more reasoned approach to responding to a potentially volatile issue.

Once the family demonstrated that this was the new way of managing conflict, the family started to build trust around the process. The meetings were no longer stressful. The task force process allowed individuals to build working relationships with one another, and it opened up the family to changing policies and processes that would not have been examined otherwise.

I have worked with several families who have had all progress, all decisions, and all attempts to change or move forward stymied by one simple word. No.

No is an extremely powerful word. It can turn enthusiasm into apathy. It can stop a family from doing the right thing. It can derail entire years’ worth of work.

How can a family move beyond the word No?

First, it is important to take the pulse of the family and gain an understanding of the focus of the family council.

Does the majority of the family support the family council?

Are many of your family members happy with the family’s direction?

If the family has majority support, then the next question a family council needs to ask is: How much time does the family council spend focusing on the positive majority? If the answer is disproportionate, then the family council is likely spending too much time on the negative few rather than the positive majority.

It is natural to want to resolve the differences, fix the problems, and make things better; however this is family we are talking about – how likely is it that the family will all be happy at the same time?

The first step is to arm yourself with answers to the above questions. Then the family needs to agree on how to move beyond the impasse.

Getting agreement on moving beyond the word No

First, the family needs to decide how they will make decisions. The best way to get beyond the word No is to create an inclusive decision-making process. Get those who are likely to say No to any new policy or process in on the development and decision-making by using a task force. If they won’t participate, call them and tell them what you’re working on and get their feedback as you work on development.

Second, show individuals where you used their feedback in the development process. If someone has an idea that can’t be used, explain why and how you can keep it for future consideration. This is an important step because it shows individuals that their voice was heard and incorporated into the proposal.

Third, agree that the family will strive for consensus through the inclusive decision making process–but that the decision will ultimately be decided by the majority if consensus can’t be reached.

Fourth, get agreement on key ideas before anything gets written down in a policy or formal document. Webinars, family council meetings, conference calls, and e-mails can all be great ways to shop around what a task force is thinking about prior to drafting a big document.

Fifth, don’t present surprises for a vote. The family should have seen all of the materials several times prior to a call for a vote. Use available technology to get information in front of family members well before it’s time to vote on it. Provide previews with ample time for consideration and feedback.

This process may seem too elaborate for a family setting. However, this may be the key to making forward progress rather than being stymied by that dreaded word: No.

Family businesses are full of risks. There’s the risk that the board won’t have the proper directors in place to support the business strategy. There’s the risk that the business doesn’t have the right strategy. And then there are the risks involved in maintaining family ownership. There’s always the risk that the family won’t be a good partner with the business, or that the dividend policy won’t allow the business to grow. There’s a risk that the family will see the business as their personal checking account. And there’s an ever-present risk that family conflicts will escalate into huge problems, resulting in lawsuits between family members or against the business itself.

When family conflicts escalate to that degree, they create the kind of environment where the family is a distraction to the business. When the family is dueling with each other, the board and the management are forced to focus on the family, rather than on the business. They can’t think strategically when they’re spending all their time putting out fires that the family has created.

Most family councils are aware of these risks, and they spend years putting together policies to protect against them. The family council thinks that’s the focus of their work because best practices show that’s where they should put their effort. But those policies are not going to prevent conflict. They may protect you in the event of a conflict, but they don’t prevent it.

Preventing conflict is far better than using policies to manage it. I have worked with and spoken to many families whose conflict has resulted in lawsuits. Many of these families find it difficult to recover from the emotional and financial toll that lawsuits bring and the lawsuits and their burdens become part of the family legacy that gets passed down to future generations.

One of the best preventive measures is to put time and effort into the relationships between family members. This is easier if you’re operating the business with an eye toward the core values of inclusiveness, transparency and stewardship. You can build good relationships through working together, but you shouldn’t expect the working relationship to be enough by itself. Successful families take every opportunity to spend time together as a family. Strong relationships will make it much easier for your family to make difficult decisions, and manage any conflict quickly before it blows up out of control. Those family relationships step in line first before the policies have to.

In one family I worked with, there had always been one branch of the family who took a position that was the opposite of what the majority of the family wanted. If everyone was for something, they were against it. If everyone was against it, they were for it. It was really difficult.

Over time, the isolated branch of the family came to define themselves by their opposition. It became their identity within the family.

While the family leadership was working on implementing task forces and committees to get more and more people involved in business stewardship, one member of the family quietly reached out to the isolated branch. He didn’t do it intending to bring them back into the fold. He didn’t do it to manipulate them. But they were his cousins, and it was important to him to have a good relationship with them.

The isolated branch had two young children, and this quiet self-appointed liaison made a point of developing a relationship with the kids. He visited them. He called them on the phone. As they got older, he offered them a summer internship so they could learn about the business. It was so under the radar that nobody realized what he was doing.

When the isolated branch of the family attended family meetings, for the first time they had a touchstone, somebody they knew and trusted. They were estranged from everyone else, but having one friendly face in the room made them more open to participating in the activities that had been planned for the whole group.

Just by being a good cousin, by being someone who cared about having a strong relationship with all his family, one person was able to make more progress than the entire family council.

Although the role wasn’t formalized, this person was acting as a sort of ombudsman.

Reaching out to isolated branches or members of the family on a personal level can be very effective. It reminds everyone that the family relationships are the foundation for the business. It’s still important to create task forces to involve more people, and it’s still important to talk over planned changes with the likely dissenters before presenting proposals to the whole group. But it’s the underlying relationships that make the family business possible. Healing the relationships is good for the family and the business.